The new overtime rule is about to go into effect. Many small businesses that never had to worry about nonexempt employees will now be faced with the issue. Here’s what you need to know about the new overtime exemption rules.
Your HR load is about to ramp up. That’s because new overtime regulations take effect on December 1, 2016. For any employee that makes less than $47,476 per year, they can no longer be labeled as exempt from overtime. That’s more than double the current threshold of $23,660K per year. More bluntly—if you have anybody working for you below that pay threshold, you probably have to pay them overtime after 40 hours of work. This applies to any one week in the year, not cumulatively.
The FLSA does not cover things like vacation, holiday, sick or severance pay, holiday hours, special weekend wages, fringe benefits or discharge practices. All of these items are covered in your employment contract or policy manual.
And yes, the FLSA does dictate overtime pay. In the past, if your employees were hourly, (also called non-exempt) you had to pay overtime pay for more than 40 hours of work. But there were exceptions to this overtime pay rule. You could be an exempt employee if you were a teacher or an administrator in a school, outside sales rep, and certain computer related occupations. Seasonal employees like fisherman, newspaper delivery workers, some farm workers, and babysitters or people who cared for the elderly in a casual capacity. Finally, if you were paid less than $23,660 you could not be considered exempt. There were all kinds of workarounds employers could use to classify employees as exempt but now, the pay threshold overshadows almost all of those workarounds.
There are many more highly complicated rules for designating employees as exempt or non-exempt that haven’t changed but the pay threshold more than doubling from $23k to $47,476 means back to hourly wages rather than a salary—something that has traditionally meant a more professional status.
What does the change look like in more practical terms? First, back to the days of time cards. The modern day equivalent are online platforms that allow for clocking in and out on a mobile app but the idea is the same. Your employees have to be detailed with it. If they worked until 11:30 at night getting ready for a sales call the next morning, they have to clock the hours. If they took 45 minutes for lunch, they have to clock it. If they don’t, you are in violation of the law. If they reach their 40 hours on Thursday, they can’t work Friday unless you pay for the overtime.
Second, if you’re like most small businesses, you allow your employees to work irregular hours as long as they get their work done with excellence and on time. Under the new system, the more employees you have, the harder it will be to allow them to come and go as needed. You’ll likely find it easier to hold them to set hours.
How Will You Pay Overtime?
Non-exempt employees may receive either hourly or salaried pay. After Dec. 1, 2016, if they earn under $913 a week, they must receive time and a half in overtime pay for all hours worked over 40 in a workweek.
Remember, both federal and state standards govern how to classify members of your workforce. So be sure to check your state’s specific laws to make sure you’re staying compliant.
An Overtime Calculation Example:
Maria is an administrative assistant with a salary of $39,000 a year, or $750 a week. Her base salary breaks down to $18.75 an hour. She was previously an exempt employee and didn’t receive overtime when she worked more than 40 hours a week.
Starting Dec. 1, Maria will be considered non-exempt and eligible for overtime pay. During the first week of December, she stayed at the office 48 hours. Her pay for that week includes her salaried payment plus time and a half for the eight extra hours.
(18.75 * 1.5) * (8) + (750) = $975
Broken down, Maria earned her base pay of $750 a week and an additional $225 in overtime.
No Special Deals
Under FSLA, some things you can negotiate but you can’t skirt the new regulations by negotiating with your employees. There’s a workaround, of course. If you have an employee that’s close to the $47,476 threshold that regularly works overtime, give them a raise. The pay bump might be cheaper than paying overtime hours or hiring another employee to take on their overtime workload.
The law isn’t likely to change before going into effect so start putting together a strategy that works for your business. And if you’re a sole proprietorship, celebrate because none of this applies to you.